10 horrible decisions that will mess up your car insurance

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Many people forget that your car insurance policy is actually a contract. Insurers aren’t required to insure you and your behavior affects what coverage you can purchase.

You must pay your premiums on time and follow your auto insurance company’s rules to keep your policy intact and car insurance rates down.

But how can you abide by the rules when you don’t even know them? Policies are long and the fine print and terms may confuse you. Don’t worry, we have your back.

Here are 10 common scenarios that Insure.com readers often ask our experts (and we also have other frequently asked questions at the end of the article). If any of these sound familiar, now is the time to fix the issue before you get in a pickle.

You let your car insurance policy lapse.

Having been in a worldwide pandemic for the better part of a year, people are learning to live with adjusted lifestyles they’ve been handed.

Kids are going to school remotely, stores limit shoppers and an unprecedented number of employees work from home. All of this – and more — add up to less income and fewer vehicle trips.

You’re probably looking for ways to save, too. One of the first places people tend to look is auto insurance. If you’re not driving as much, you don’t need your insurance, right? Wrong.

If you cancel your insurance and then re-up it three months later, insurance companies consider that a lapse in coverage. CarInsurance.com Editorial Director Michelle Megna said insurance companies view people with a lapse of coverage as high risk. Insurers typically lump people with a coverage lapse with those who didn’t pay their bills or got canceled because of high-risk driving. That’s why it’s vital to not let your insurance lapse. 

When you cancel, the following happens:

Because the vehicle is registered in your name, your state DMV assumes you’re driving it. So, typically you have to surrender the plates and cancel your registration — or face fines. So, that’s a lot of hoops to jump through if you plan to then start driving again fairly soon, as you’ll have to register it again.

You’ll also lose any auto insurance discounts, such as multi-vehicle, bundling, safe driver and loyalty.

When you do bring back coverage, you’ll pay an average of 9% more.

“That’s because, like bad credit, insurers say their research shows that drivers with lapse in coverage are high risk, meaning they file more claims, which means more expensive for insurers to cover,” said Megna.

You don’t take care of your credit score.

Auto insurance policy is like taking out a line of credit. The insurer trusts the insured to take the utmost care with driving and pay their bill on time.

It’s a leap of faith and trust decision all in one. One of the tools insurance companies use to determine insurability and low risk factor is your credit score rating. 

So, if you decide to forfeit payments on another installment loan, remember that it can affect your auto insurance down the road. Is it really worth defaulting on that furniture loan when you know you might not be able to drive when you need to?

You haven’t added a newly licensed teen to your car insurance policy.

One reader asked, “can my son drive my car if he is not insured?”

No one wants to raise their hand and pay more for car insurance. But insurers are permitted to consider all household residents when they price a policy, including a licensed teen. Withholding information about your teen driver from your insurer is a big no-no.

And don’t think that auto insurers won’t know about your teen — they have ways of finding out. A car insurance company can pull reports that identify “hidden” household members. One such report from LexisNexis looks for “undisclosed” newly licensed youthful drivers between ages 15 and 25.  If your insurer finds out about your licensed teenager this way, it can revise your premiums to include the young driver or decide it doesn’t want your business anymore.

If your insurer doesn’t find out about your teen until there’s an accident, it still might cover the incident. That would be a lucky outcome, but you’d likely owe back premiums based on when your teen driver was licensed — so you may have to pay the insurer a lot at once just to have the accident covered and teen insured. 

Or your auto insurer may say it’s not covering the teenager and is dropping your policy because you didn’t inform the company. They call this misrepresentation and can be considered insurance fraud.

Adding a driver to auto insurance is quick, easy and shouldn’t be delayed.

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You let your adult child take your car with her when she moved to another state.

Sure, it’s easy to put off a call to your agent and let your child move away with a family vehicle, but it’s not advised.  

When your car is being driven and garaged in a new area, the risks you pose as a customer have changed. Auto insurance companies expect to be informed about these changes. 

If your daughter were in an accident, your insurer could say you concealed vital information about the vehicle’s location, deny your claim and cancel the policy.

If you want to do things the right way, add the child’s name to the car’s title. Then, your child can insure a car in her own name, using her new address. This will also allow your child to register the car in her new state, which most states require.

You sold your car to your son but still carry the insurance on it.

“Can I insure a car not in my name?” is a common question from readers.

In general, you can’t carry insurance on a vehicle in which you don’t have an “insurable interest.”  

Typically those with an insurable interest are the owner of the car, lienholders and co-signers – meaning those who would be affected financially if something happens to the vehicle.

Since you are no longer the car’s owner and no longer have insurable interest, it’s time for the new owner of the car — your child — to buy car insurance for the vehicle. If he’s still a minor, you may have to be on the policy with him. Minors typically must have a parent or guardian involved in the auto insurance contract.

You could face problems submitting a claim if you have failed to tell your insurer about the ownership change. Or worse, the auto insurance company could say you hid the change as a scheme to get lower car insurance rates, which would qualify as insurance fraud and a reason for it to deny claims and cancel the policy. 

You want to finance and insure a car for a relative who lives out of state.

Auto finance companies want evidence that the car loan is in the same name as the insurance policy. Since you’re not the primary driver of the car, nor is the car at your residence, it’s difficult, if not impossible, for you to insure the vehicle.

You should contact the finance company to see if it will allow your relative to be the “named insured” on a policy. If it agrees, your relative has the hurdle of finding an insurer in her state that will permit her to insure a car she doesn’t own. If she can find such a company, she still has to list you and the finance company on the insurance as owner of the vehicle and lienholder, respectively.

If you carry insurance on the vehicle without telling your insurer about the situation and your relative wrecks the vehicle, it’s very likely the accident wouldn’t be covered. Your car insurance company is likely to call you out for misrepresenting who was driving the vehilce and where it was located and cancel the policy. 

Also, remember each state has its own auto insurance laws, so if you insure in your state while the car is driven and parked in another, the insurance policy would not match with the rules of the state it’s located in — another problem the insurer may have if they even thought of covering any type of accident.

You lend your car to a friend for a few months and don’t notify the insurance company.

Your car insurance policy typically covers a friend who drives your vehicle occasionally, but it’s a different story when you loan your car out for a long period. The vehicle is now housed someplace other than your residence, and someone else is acting as the primary driver of the car. Your auto insurance company wants to know about those circumstances.

If your insurance company’s rules allow, you may be permitted to add your friend as a driver to your auto policy. However, most car insurance companies don’t want to add a person outside of the household.  If that is the case, your friend should consider insuring the vehicle.  Some insurance companies will allow someone to insure a car that he doesn’t own, as long as the owner of the vehicle is listed on the policy.

If your friend crashes your vehicle without the insurance company being aware and agreeing to insure the friend, it can deny claims because you concealed pertinent information about the “real” driver and vehicle location. That can leave you and your friend on the hook for damages he caused.

You’re delivering pizzas with your personal vehicle — or driving for Uber or Lyft.

Most personal auto insurance policies exclude coverage if you use the vehicle to deliver items, whether it’s pizza, newspapers, packages or medical supplies. Insurance companies see risk in delivery drivers because they are constantly on the road.

If you want to be paid to deliver items, you should change to a business-use or commercial auto insurance policy. If you don’t and you get caught driving for deliveries, you’re on your own to compensate others for damages they sustained — and the damages to your own vehicle.

If you’ve moved on from pizza delivery to driving people for money, make certain your insurer knows and you have the right coverage. Car insurance companies exclude coverage for drivers engaged in commercial activities, be it delivering pizza or people to a destination. But because ridesharing has become such a big business, many auto insurance providers now offer policies or endorsements that rideshare drivers can purchase to add onto their normal policy that will cover them at least during at least Period 1. Period 1 is when a driver is available for hire but yet to accept a bid. If you don’t have this special coverage and get into an accident, don’t look for your insurer to cover any claims for an accident that takes place during your rideshare adventures. 

Rideshare companies carry insurance coverage, but it’s contingent coverage. You’re supposed to have your own policy as primary for certain periods and because of that may not cover any accident costs.

Also, if your insurer finds out you’re a rideshare driver in your personal vehicle and failed to inform them, expect your policy to be canceled. 

You bought a new car weeks ago and haven’t told your insurer.

If you traded in a vehicle, your auto insurance policy likely extends the same exact coverage to your new vehicle for a limited time. 

The deadline for informing your insurer about the new car varies by insurer but is typically 14 to 30 days. Here’s more about extending coverage to new cars.

The bottom line is: Don’t bet on having automatic coverage; some car insurance companies don’t give you any. 

And if you’re adding a vehicle rather than replacing one, you should buy coverage for it before driving it off the lot.

Your insurance company won’t help you if you’re outside the insurer’s automatic coverage period or there’s no extended coverage on your new car. 

You haven’t told your insurance company that your live-in girlfriend drives your car.

Insurance companies hate it when you “forget” to tell them about a driver who lives with you or regularly uses your vehicle. Insurers can’t charge you correctly if they don’t know about all licensed household members, including a girlfriend or spouse. 

If you recently got married or moved in with someone, let the insurance company know immediately and have the person added to your policy as a driver. If you fail to do so, don’t be surprised if claims are denied if they cause an accident or if you’re asked to pay back premiums based on the additional driver. 

If your insurance company believes you were intentionally hiding the driver – say your girlfriend has a bad driving record — it may say you committed fraud by means of misrepresentation. That means your car insurer can cancel your policy.